Japanese yen eyes Tokyo Core CPI

The Japanese yen edged higher earlier but has pared those gains and is almost unchanged on the day. USD/JPY is trading at 144.81 in the North American session.

Tokyo Core CPI expected to fall to 2%

Japan releases Tokyo Core CPI, a leading indicator of inflation trends, early on Friday. The index has accelerated for four straight months and hit 2.4% in August, a six-month high. However, the markets are expecting a decline in September, with the market estimate at 2.0%.

The Bank of Japan has said that underlying inflation needs to rise to 2% before it will raise rates and investors are keeping an eye on every inflation release. Core CPI rose in August from 2.7% to 2.8%, comfortably above the BoJ’s2% target. The BoJ has signaled that it although it plans to raise rates it isn’t in any rush – Governor Ueda said this week that the central bank can afford to wait and will be keeping a close eye on service inflation releases in October.

Will the Federal Reserve deliver another jumbo rate cut in November? The Fed’s dot plot from this month’s meeting forecasts 50 basis points in cuts before year’s end, while the money market has priced in 75 bps points until the end of the year. With only two Fed rate meetings left in 2024, this would mean that one of the meetings would see a 50-bps cut. The Fed started the new rate-cutting cycle with a 50-bps reduction earlier this month.

On Friday, the US releases the Core PCE Price Index, which is considered the Fed’s preferred inflation indicator. The index is expected to creep up to 2.7% in August after remaining unchanged at 2.6% for the past three months. A surprise reading would likely swing the rate-cut odds for the November meeting. Currently, the market have priced in a 54% chance of a 50-bps cut and a 46% likelihood of a modest 25-bps cut.

USD/JPY Technical

• USD/JPY tested support at 144.17 earlier. Below, there is support at 143.69
• There is resistance at 145.42 and 146.10

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